Can I leverage a 401k for my first REI

5 Replies

I have an active employer contribution 401K and was wondering if I can leverage a loan from it to start with my first deal. The cool thing about it is this particular investment firm offers a 7.5% return to myself for the loan as long as it's paid back with an auto withdraw payment after tax from my normal paycheck. I only have about 15k In it as of now and an additional 6k in savings. I have heard of going through a self directed IRA, but not much info on this item I'm referencing. I just need to make sure it's at a comfortable amount on the withdrawal without feeling over extended until enough passive income is made to offset the withdraw.

My son and I have been driving for dollars around the Central Valley and east bay areas and have sent out roughly 40 yellow letters to date all while still searching to try and increase our prospective % ratio and gearing up to try and make that happen when we get our first prospect.

Can this BRRRR strategy still work on pre-foreclosures?

@ Ryan Webster Thank you. I'll have to ask a bit more info on how that would work as I believe what I have seen online with my 401K brokerage firm and the read above from @Nathan G. , I may only be able to leverage 50% loan once a calendar year.

@Jay Clegg

1) You can't take a loan from an IRA. Even the ability to take process an indirect rollover from an IRA (withdraw funds from an IRA and then return with 60 days to avoid taxes and penalties) has been severly limited as now you can only process one 60-day indirect rollover per every 12 month period regardless of the number IRA accounts that you have.

2) 

Here are the general considerations regarding 401k loans.

401k Participant Loans

  • If your 401k plan allows for 401k participant loans, the maximum loan amount is equal to 50% of the balance up to $50k. The repayment terms for a 401k participant loan are equal monthly/quarterly payments of principal and interest (typically prime plus 1%) over a 5 year term (longer if used to acquire your principal residence).
  • Please note that if you take a full $50,000 and then pay back the loan, you can't take another $50,000 until 12 months after the first loan was fully paid back.
  • Per the loan offset rules that went into effect with the 2018 Tax and Job Act: if you leave your job and the loan is current at the time you leave your job but then the loan goes into default because you left your job, you will have until your tax return deadline (including any timely filed extension) to make the loan current by depositing the outstanding balance into an IRA (and thereby avoid the taxes and penalties that would otherwise apply).

3) The IRS rules don't allow you to pledge your 401k assets as collateral for a personal loan:

https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-loans